US and Mexico strike sugar deal, averting a potential trade war

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Dive Brief:

In a deal to end a long and contentious battle over sugar, Mexico agreed to U.S. demands to make meaningful changes to terms of access to the lucrative U.S. sugar market, according to Reuters. The pact sets the course for bigger talks on rewriting the North American Free Trade Agreement expected to start later this summer.

The wire service reported U.S. sugar producers, wanting even more concessions from Mexico, refused to endorse the agreement in principle — putting the deal on shaky ground.

The pact reached between the two countries would require Mexico to reduce the share of refined sugar it exports to the U.S. and increase raw sugar exports. It also lifts the minimum prices for Mexican imports into the U.S.

Dive Insight:

The deal between the two trading partners — reducing the amount of refined sugar Mexico exports to the United States, and increasing raw shipments of the sweetener — appears to provide clarity to a market that has struggled under growing uncertainty since 2014. Most importantly, it significantly lowers the likelihood of one country retaliating against the other. Sugar has been a major issue in renegotiating the North American Free Trade Agreement expected to take place later this year.

“The agreement prevented potentially significant and retaliatory actions by the Mexican sugar industry and sets an important tone of good faith leading up to the renegotiation of the North American Free Trade Agreement," U.S. Secretary of Agriculture Sonny Perdue said in a statement.

But the pact is expected to increase costs for sugar users in the United States. The increase is likely to be passed on by refiners to food and beverage companies who use sugar in a variety of products including cookies, cakes, sodas, cereal and candy. Consumers will then pay higher prices.

"Today's announcement is a bad deal for hardworking Americans and exemplifies the worst form of crony capitalism," the U.S. Coalition for Sugar Reform said in a statement."The agreement in principle does not address the fact that the price of sugar in this country is already 80% higher than the world price. In fact, it will result in higher prices costing U.S. consumers an estimated $1 billion a year."

The U.S. levied duties on Mexican sugar three years ago, but later struck a deal with its trading partner that ended those penalties. Some members of the sugar industry have complained it failed to eliminate harm from Mexican imports. In a letter last year to then-Commerce Secretary Penny Pritzker, Imperial Sugar claimed the Countervailing Duty and Anti-dumping Suspension Agreements between the U.S. and Mexico violated fair trade laws and threatened the U.S. sugar refining market.

The agreement announced Tuesday would lower the allowed polarity, a measure of quality, for Mexican sugar exports. Reuters said U.S. refiners have complained that high-quality Mexican raw sugar was going straight to sugar consumers, rather than passing through U.S. refineries, starving them of the commodity.

The U.S. and Mexico have been sparring for years over sugar. Assuming deal is enacted, it remains uncertain how long both sides will be at peace. One thing that is virtually guaranteed: users of sugar facing higher costs have already soured on the deal.